The Swedish government wants to apply the economic employer concept from 2019

Economic employer concept in Sweden from 2019?

If the proposal becomes legislation, this would result in extended tax liabilities and reporting requirements for foreign employer and employees.



Petter Frödeberg

Partner & Head of Global Mobility Services

KPMG i Sverige


In previous TaxNews we have written about the Tax Agency's memorandum that proposed extended taxation of temporary employment in Sweden and increased administrative obligations for foreign employers. On May 17 2018, the Finance Ministry presented its draft legislative proposal (PDF 1 MB) to the Swedish Council on Legislation, ahead of a formal Bill that is anticipated later this summer. We note that the new proposal is largely in line with the Swedish Tax Agency's memorandum.

The proposed new legislation means that:

  • Sweden will start to adopt the economic employer concept as of January 1, 2019,
  • The 183-day exemption rule is supplemented with an exception for labor hire (labor hire in a wider sense),
  • Foreign companies without a permanent establishment in Sweden should in certain cases deduct tax from salary paid to employees who perform work in Sweden,
  • Foreign companies operating in Sweden need to file specific information to enable assessment of their tax liability, and
  • Those who engage a foreign contractor without a permanent establishment in Sweden shall in some cases make tax deductions for compensation for work.

For the time being the Government has not proceeded with the Tax Agency's suggested mandatory notification for individuals who work in Sweden for more than five days. This does however not prevent the individual from potentially becoming taxable in Sweden from the first work day.

Economic employer vs. formal employer

Sweden currently applies the term "formal employer", meaning that employment income attributable to work performed in Sweden for a Swedish company can be tax exempted under the so-called 183-day rule. One condition is that the employee still is employed by the employer in his country of dispatch and that this employer pays the salary.

The term "economic employer" means instead that the beneficiary of the employee's work is to be considered employer – with resulting tax consequences. This is the dominant view in many other countries. A transition to this approach means that a greater number of individuals would be taxable in Sweden.

Hiring of labor

It is proposed that the so-called 183-day rule, which normally can result in tax exemption for foreign individuals for six months, no longer shall apply to labor hire. The individual would instead be taxed from the first work day. In this context, hiring of labor means, somewhat simplified, that a person is made available to carry out work in a client's business and that the work is performed as an integral part of his activities. Consequently, the term is more extensive than traditional staffing.

The Finance Ministry gives several examples of what they consider to be hiring of labor and not. Construction staff from a foreign staffing agency, hired by a Swedish construction company to do building work at the factory of a Swedish manufacturing company, are considered to be an integral part of the construction company's (but not the manufacturer’s) business and therefore have their economic employer in Sweden. A person from a foreign parent company, who is working temporarily with a Swedish subsidiary to ensure that the subsidiary follows the Group's marketing strategy, is not considered to have the Swedish company as an economic employer.

Tax deduction from salary, monthly reporting and reporting obligations

Foreign employers will need to administrate tax deductions in so far as the salary relates to work in Sweden. This therefore also means an obligation for the foreign company to register as employer in Sweden and to file a monthly employer return. Certain related work performed abroad may also be included and equated with work in Sweden.

Foreign companies operating in Sweden may need to file certain information to enable assessment of their tax liability. This applies to companies as well as foreign natural persons approved for Swedish so called F-tax (a certificate indicating that the contractor operates a business).

Tax deduction from remuneration for work

Currently, the person who hires a contractor who is not approved for Swedish F-tax is required to make tax deductions by 30% on payments for performed work. Today, however, there is an exception for compensation paid to foreign contractors without a permanent establishment in Sweden. The Finance Ministry proposes to remove this exemption for foreign companies.


The proposal also introduces an obligation to always make tax deductions on paid board fees and similar remuneration that anyone receives as a board member or similar bodies in Swedish companies.

Next steps

The legislation is suggested to enter into force on 1 January 2019.

We are awaiting the opinion of the Council of Legislation, and the step after that is the submission of a Bill to the Swedish Parliament. We have indications that the Bill may be submitted already in June 2018.

KPMG's comment

The Swedish government have more or less followed the original memorandum, but have refrained from introducing a notification obligation for natural persons when the work in Sweden begins. This means that part of the anticipated increased workload, especially for companies with many and frequent business travelers, will not materialize. On the other hand, the potential tax liability for this category of individuals is unchanged compared to the memorandum. The deciding factor is still whether the individual works for an economic employer in Sweden or not. The proposal does not suggest any threshold minimum number of work days before the tax liability sets in. In practice, there will be a significant increase in the number of individuals working in Sweden that are taxable in Sweden, and there will be additional employer reporting and tax withholding obligations.

You are welcome to contact us should you have any questions regarding the potential consequences for your business.


Read the article in Swedish.


Petter Frodeberg
+ 46 8 723 96 82

Louise Hemmestad
+46 8 723 61 09

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